French properties popular with foreigners

When Mary Greene and her husband Daniel bought their stone-house getaway in the lush Provence region of France, they broke every possible rule of negotiation. To start with – they didn’t even ask the price.

“We just said, ‘We’re buying it,’ ” laughs Greene, a psychologist from Englewood, New Jersey. “We’d rented there for 15 years, so when the owner finally decided to sell the house, it fit us perfectly.”

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As it turns out, the couple’s dream getaway has proved a pretty savvy investment as well. The couple bought in the summer of 2001 for $500,000, and since then the home, which sits on the Vaucluse Plateau gazing across a valley at the Luberon Mountains, has more than doubled in value. Plus – much better than stocks or bonds – they get to sit inside their investment while tasting some soupe au pistou, a local speciality, and a bottle of red from local winegrowers such as Chateau Romanin.

“Just about all of our tenants are Americans, and they all adore France,” says Greene, who stays in Provence a little less than half the year and rents the home out for the remainder. “For us, it was love at first sight.”

So much for frazzled Franco-American relations, which reached a low following the debut of the Iraq war. At the time the US Congress famously relabelled its cafeteria fare “Freedom Fries”, restaurateurs poured out French wine in the streets of New York, and tabloids tossed out nasty phrases such as “cheese-eating surrender monkeys.”

Now, with growing ranks of the American ultra-wealthy, a more US-friendly president in Nicolas Sarkozy, a cratering stateside housing market and the prospect of tax relief on mortgage interest payments, buyers are once again being lured to the arrondissements of Paris and the sands of the Côte d’Azur.

“French property prices have been some of the fastest growing in Europe,” says Melanie Averall, an economist with the London office of Moody’s Economy.com. “House price growth came in at 11.5 per cent last year, after 14.2 per cent in 2005. Notably, prices in areas around budget airline access points are set to rise thanks to continued interest from foreign buyers.”

Flush with cash, well-heeled Americans are taking notice. With every one of the Forbes 400 list of richest Americans now billionaires, and the top 5 per cent of the US population seeing their wealth soar by 40 per cent from 1990 to 2005, it is only natural that some would want to add a taste of France to their assets, says Franck Dossa, a real-estate agent in Miami Beach who deals with many international buyers.

A recent survey by Coldwell Banker found that among wealthy Americans who had recently bought homes abroad, France ranked at the top of the list. “There has been more interest from Americans lately,” Dossa says. “They’re looking for castles, vineyards, Provence farmhouses.”

But Americans are hardly alone in rediscovering a love of France. In fact many buyers from abroad have been British, who now own roughly 200,000 properties in France, according to the online property marketplace Rightmove.com.

It does not surprise Mary Greene, who sees a virtual United Nations emerging around her in the hills of Provence. “We have British neighbours, Swedish, Swiss,” she says. “So many that great places are getting harder to find.”

Indeed, hotspots such as Paris, the Côte d’Azur along the Mediterranean, and winegrowing regions such as Bourgogne and Bordeaux see the lion’s share of foreign buying activity.

Values in Paris are pricey and comparable with other cosmopolitan capitals, with a one-bedroom pied-a-terre in the range of €200,000 ($275,000), Dossa says. Or you might look at a charming cottage in Bourgogne for €100,000 and up, or perhaps a countryside castle for a €1m.

For more affordable locales, check out Toulouse in the southwest or Marseilles along the Mediterranean coast, suggests Donald Whalen, a financial planner in Atlanta who has helped many clients buy property abroad.

Beware, though, that buying a home in France is not for the faint of heart. Among the personal-finance issues to consider, which raise the bar of difficulty: getting a mortgage from French banks. They tend to require larger down payments than Americans are used to – 20, 30 or even 40 per cent or more – and you will have to set up a local account. On the plus side, interest rates are still relatively low, in the range of 4-5 per cent instead of the 6-7 per cent offered by their US counterparts.

You will also have to find the right real-estate agent, since there is a lack of a national Multiple Listing Service-style property database, as in the US; secure the services of a notaire, who will stickhandle all aspects of the deal; and ward off potentially punishing foreign taxes.

Getting local advisers on board is crucial, says one recent buyer. An estate planner with Sagemark Consulting in Naples, Florida, Tom Bulloch has snapped up a top-floor one-bedroom apartment in the French Alps village of Flaine, which is being developed by North American resort giant Intrawest.

In doing so Bulloch basically set up a family-run company, what the French call an SCI. As such “we can deduct the mortgage costs from our income just as if it were in Deer Valley, Utah,” he says. And avoiding key mis-steps, with the help of French advisers, has saved him more than $200,000, he estimates.

A decent place to start your search is www.Frenchpropertylinks.com, which is “as close to Multiple Listing Service as one can get”, Whalen says. It lists available properties, compiles city guides, and offers troubleshooting tips on issues such as French mortgages, local taxation and currency exchange. For US-specific content, check out www.americansinfrance.net. And for the local equivalent of the National Association of Realtors, visit www.fnaim.fr.

A primary financial pitfall for would-be buyers is the “wealth tax”, the scourge of well-heeled in France. It is an annual levy on assets, which rises as you surpass various wealth thresholds. The good news for Americans: if you are only looking to be a non-resident, and spend under six months of the year in France, it will only apply to the value of your French assets. And if the equity in your home remains under €760,000, it will not affect you at all. Above that level, tax rates begin at 0.55 per cent and eventually rise to 1.8 per cent.

You can rent the place out when you are not in France. Mary Greene, for instance, lists her getaway on the site www.HomeAway.com
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You can also opt for a leaseback – a long-term arrangement that is specific to France. Because of limited housing for visitors in popular French areas, you can agree to have an agency rent your home for most of the year, and get guaranteed income in return. An added bonus? Revenue is in euros, so you are protected from further weakening of the US dollar.

Or you can just keep your new French escape for you and your family, like Tom Bulloch. Though French property values have sparkled in recent years, Bulloch still foresees excellent prospects for his investment. Comparable apartments in Swiss spots such as Valais were roughly triple the price. Sarkozy’s proposed capping of income tax rates, along with mortgage-interest deductibility, will boost property values by a third in the next two or three years, he predicts.

And thrown into the real-estate bargain is the kind of culture you just can’t get back home in the US. “We can visit the vineyards of Burgundy in an hour-and-a-half, or be skiing in northern Italy in an hour,” Bulloch raves. “It’s all very romantic.”